Key Concepts in Accounting

Definition: Accounting is the systematic process of recording, measuring, and communicating financial information about economic entities.
Main Functions:
- Recording: Documenting financial transactions.
- Classifying: Organizing transactions into categories.
- Summarizing: Compiling data into financial statements.
- Reporting: Presenting financial information to stakeholders.

Balance Sheet:
- Shows a company’s assets, liabilities, and equity at a specific point in time.
- Equation: Assets = Liabilities + Equity.
Income Statement:
- Reports revenues and expenses over a period, indicating profit or loss.
- Equation: Net Income = Revenues - Expenses.
Cash Flow Statement:
- Provides information about cash inflows and outflows from operating, investing, and financing activities.
Statement of Changes in Equity:
- Details changes in equity during a reporting period, including dividends and profits.

Generally Accepted Accounting Principles (GAAP): Framework of accounting standards, principles, and procedures.
International Financial Reporting Standards (IFRS): Global accounting standards for consistency across countries.

Financial Accounting:
- Focuses on reporting financial information to external parties.
- Adheres to GAAP or IFRS.
Managerial Accounting:
- Provides internal management with information for decision-making.
- Includes budgeting, forecasting, and performance evaluation.
Tax Accounting:
- Focuses on tax-related matters and compliance with tax laws.
Auditing:
- Examination of financial records and statements to ensure accuracy and compliance.

Identify Transactions: Recognize economic events.
Record Transactions: Use journals for initial entry.
Post to Ledger: Transfer entries to the general ledger.
Prepare Trial Balance: Ensure debits equal credits.
Adjust Entries: Make necessary adjustments at period-end.
Prepare Financial Statements: Compile the balance sheet, income statement, etc.
Close Accounts: Reset temporary accounts for the next period.

Assets: Resources owned by a business.
Liabilities: Obligations of a business.
Equity: Owner’s claim on the assets of the business.
Debits and Credits: Fundamental accounting entries; debits increase assets/expenses, credits increase liabilities/equity/income.

Double-Entry Accounting: Every transaction affects at least two accounts, maintaining the accounting equation.
Accrual vs. Cash Accounting:
- Accrual Accounting: Revenues and expenses recognized when earned/incurred, regardless of cash flow.
- Cash Accounting: Revenues and expenses recorded when cash is exchanged.

Common accounting software: QuickBooks, Xero, Sage, and FreshBooks.
Use of spreadsheets (e.g., Microsoft Excel) for financial analysis and modeling.

Accounting systematically records, measures, and communicates financial information regarding economic entities.
Main functions include: recording financial transactions, classifying them into categories, summarizing data into financial statements, and reporting to stakeholders.

Balance Sheet: Illustrates a company’s assets, liabilities, and equity at a specific date. Follows the equation: Assets = Liabilities + Equity.
Income Statement: Displays revenues and expenses over a period, leading to net income computed by the equation: Net Income = Revenues - Expenses.
Cash Flow Statement: Highlights cash inflows and outflows across operating, investing, and financing activities.
Statement of Changes in Equity: Outlines changes in equity, including dividends and profits during a reporting timeframe.

GAAP: Establishes a framework of accounting standards, principles, and procedures primarily used in the United States.
IFRS: Provides global accounting standards to ensure consistency in financial reporting across different countries.

Financial Accounting: Aims to report financial information to external parties, adhering to GAAP or IFRS.
Managerial Accounting: Supplies internal management with data for enhanced decision-making, including budgeting and performance evaluation.
Tax Accounting: Centers on tax-related issues and compliance with local tax regulations.
Auditing: Involves evaluating financial records for accuracy and adherence to accounting standards.

Identify Transactions: Recognize relevant economic events.
Record Transactions: Utilize journals for the initial entry of data.
Post to Ledger: Transfer journal entries to the general ledger.
Prepare Trial Balance: Check that debits equal credits.
Adjust Entries: Implement necessary adjustments at the end of the reporting period.
Prepare Financial Statements: Compile comprehensive financial data like balance sheets and income statements.
Close Accounts: Reset temporary accounts, preparing for the next accounting period.

Assets: Resources owned by a business entity.
Liabilities: Financial obligations that a business needs to fulfill.
Equity: The owner’s residual interest in the assets after deducting liabilities.
Debits and Credits: Fundamental accounting entries; debits increase assets/expenses, credits increase liabilities/equity/income.

Double-Entry Accounting: Requires each transaction to affect at least two accounts, maintaining the accounting equation.
Accrual Accounting: Recognizes revenues and expenses when they are earned/incurred, irrespective of cash movement.
Cash Accounting: Records revenues and expenses only when cash is received or paid.

Roles include Certified Public Accountant (CPA), Internal Auditor, Tax Advisor, Forensic Accountant, and Budget Analyst.

Commonly used accounting software includes QuickBooks, Xero, Sage, and FreshBooks.
Spreadsheets like Microsoft Excel are employed for financial analysis and modeling.